Beginning Jan. 1, 2015, the University will adjust the types of income accounted for in calculating its contributions to employee retirement savings plans.

Under the new policy, University income earned beyond an employee’s base pay will no longer factor into these calculations. These types of income include compensation received for faculty honors, overtime and unused vacation and paid time off when leaving employment. Administration differentials — additional responsibilities with a limited timeframe such as department chairs — will no longer be included either.

The plan was recommended by the University’s Committee on Retirement Savings Plan and Retiree Health Benefits, which convened meetings in the fall to analyze changes to the University’s contribution to retirement savings. Conceived as a cost-saving measure, the move is expected to save the University $4.4 million annually.

Currently, employees who contribute 5 percent of their pay to a retirement plan receive a 10 percent matching contribution from the University. Last year, the University spent $242 million on contributions to employee retirement savings plans — an expense that has continued to grow.

As state allocations to the University have declined over the past decade, the University has sought new methods to contain costs. Like the shared services initiative, alterations to the structure of retirement plan allocations are part of the Administrative Services Transformation Project, a long-term project aimed to reduce costs that minimally affect the student experience.

“Cost containment at U-M is a comprehensive effort, and looking at large and growing expenses is vital to that process,” Timothy Slottow, executive vice president and chief financial officer, wrote in a press release. “We took a disciplined approach, utilizing expert faculty because we know a strong retirement savings program is crucial to the welfare of faculty and staff.”

The University also announced Thursday it saved $16 million — $2 million more than initially projected — through strategic sourcing initiatives during the 2013 fiscal year. Another component of the AST Project, this project streamlines the University’s purchasing of supplies, furniture and computers.

The University Health System, which also received similar analysis of its retirement allocations, opted for more extensive changes to its current policy.

Because a study showed UMHS’s retirement savings plan was more than 60 percent greater than national and local peers, the committee recommended capping the University’s contribution at 9 percent of base pay for certain UMHS employees. Those employees will only need to contribute 4.5 percent of their base pay to qualify for the matching program.

The University aimed to avoid more extensive changes at the university-wide level.

In an interview with the Daily, History Prof. Maris Vinovskis said across-the-board cuts to the University’s base-level contribution would have made these benefit offerings less competitive compared to other institutions that sometimes lure University professors.

Top University officials announced the changes in an e-mail that was sent to employees Thursday morning and obtained by the Daily.

“These reviews were part of the University's ongoing efforts to ensure that our benefits plans are competitive, of high value to our faculty and staff and, at the same time, responsive to the financial climate for higher education and health care,” the e-mail said.

Kathleen Canning, professor of history, women’s studies and German and chair of the History Department, said the change will likely have small impacts for regular faculty members, but for faculty members serving in leadership roles, the impacts will be more direct.

“We need to learn more about this, however, before assessing how faculty are responding to it,” Canning said.

University spokesman Rick Fitzgerald said the reductions are widely dispersed among employees. While the provision excluding overtime wages would likely affect hourly staff and the provision excluding administrative differentials would affect some faculty, Fitzgerald said the distribution would prevent any one type of employee — such as staff, faculty or hourly employees — from being disproportionately affected.

Multiple faculty members said it is too early to judge the policy, but the impacts, especially for employees who do not earn income above their base pay, are not likely to have wide-reaching implications.

Vinovskis said the University’s policy, which does more than match money for retirement, is more than generous. He added that he had not realized the University was including income above base pay in retirement plan calculations to begin with.

“I have faith in the University that they’re looking out for our interests,” Vinovskis said. “They’re trying to be very judicious. We’re living in a period of time where everyone has to make sacrifices.”